Page 33 - gs251002

Insights and Expertise

Embedded finance: Now, a small business can often head to a bank and bor-
row money. However, this entails an incredibly slow pro-
How platforms are cess. Small businesses will often need to wait days, if not
weeks, for a decision. Banks are quite strict about who
they lend to as well. This means a small business that may
redefining small be generating profit may not meet the bank’s criteria, and
its loan application will be denied. The business will then
be on the path to failure.
business funding Embedded finance is distinctly different

The embedded finance process is quicker. In fact, many
of the solutions available can provide an almost instanta-
neous lending decision, providing funding when a busi-
ness needs it. There will also be few forms to fill in.

Many embedded financing solutions are integrated in pay-
ment processors and marketplaces (for example, Shopify),
and those providers will have a detailed record of the in-
come of a business, how frequently it makes sales, whether
it can keep up with repayment obligations, and more. This
means there is a chance the provider will approve lending
that more traditional providers wouldn’t approve.
By Chad Otar
Lending Valley Embedded lending is helping businesses grow

y 2030, embedded lending is estimated to have Embedded lending can also provide important cash flow
a valuation of $7.2 trillion. Much of this lend- when a business may be suffering from a slight downturn
ing will be taken up by small businesses, com- (for example, if a business deals with seasonal sales). This
B panies that often find it notoriously difficult helps to improve a businesses’ customer journey, since it
to access funding at the point it is required. This can cost will have access to the funding it needs to keep stock re-
businesses potential customers, limiting opportunities for plenished, have the cash needed for marketing, and more.
growth.
Also, businesses with regular access to financing tend to
In this article, I'll discuss what embedded finance is and grow more rapidly, attract more customers and more eas-
the way it will help to redefine small business funding. ily maintain a healthy cash flow. I won’t be surprised if
most small businesses end up leaning on embedded fi-
What is embedded finance? nance in the future.
Embedded finance (sometimes known as embedded lend- We are in the early stages of embedded finance. The
ing) is financing offered directly through solutions that a market is very much in the ‘growth’ stage, but it is rapid
business may already be using. For example, a payment growth. Small businesses are reaping the benefits of em-
processor, a particular marketplace, etc. There are also bedded finance, as are their customers. This will continue
dedicated platforms offering embedded financing, but the long into the future. I anticipate an increasing number of
two examples just mentioned would be the main ones. platforms will start to offer embedded financing options
as a way to ensure that the businesses they work with stay
Rather than head to a bank and use the more traditional in business.
financing options available to small businesses (and those
options have downsides), businesses will instead use the Note: The following resources were consulted in research-
embedded lending tools integrated into the software they ing this article:
use to borrow money quickly.

How embedded finance is redefining https://pipe.com/resources/articles/exploring-the-benefits-of-em-
small business funding bedded-lending

Small businesses, particularly those going through a pe- http://bit.ly/4on3HhI
riod of rapid growth, often have limited cash available.
This can pose two problems: growth becomes harder, Chad Otar is CEO of Lending Valley Inc. For information about the
and a business may not have the cash needed to replenish company, please visit www.lendingvalley.com. To reach Chad, send an
stock, which means it becomes tougher to service existing email to chad@lendingvalley.com.
customers.

33